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Food Retailers: Know This Before Investing in a Grocerant

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Competition continues to eat away at grocers. With the dawn of the new European discounters, online shopping, meal kit delivery and a general disdain for eating at home, there’s a lot to content with. Small wonder grocers’ market share is down 15% over the last decade.

Phil Lempert, the self-styled Supermarket Guru, says the key to survival for grocers is to “offer more services.”

Enter the grocerant, a concept that brings food halls and in-store dining to today’s supermarkets. This trend has deep roots, since grocers have long provided some level of ready-to-eat foods, from roasted chickens to deli sandwiches.

This is not your grandmother’s deli chicken, however. Today’s successful grocerants are perceived to provide healthier options than quick-serve restaurants—a key driver for Millennials, who also see grocery-prepared foods as fresher.

The payoff potential is high; the prepared store meals category has grown 30% in sales over the last ten years, driving $10 billion in sales for 2015 according to the The NPD Group.

Grocerants might be the key to unlock increasing foot traffic in the highly competitive, low-margin grocery store line. NPD also reports these hybrid market/eateries generated 2.4 billion new visits to groceries.

But these days, it takes far more than a rotating spit and deli slicer to get into the game. A grocery/restaurant combination can require significant operational changes or a key alliance. Succeed, however, with the right concept and experience, and reap repeat customers.

An added bonus: Grocers can solidify the idea that they are food experts—raw, ready-to-eat, or restaurant.

 

Go Niche

You can credit (or blame) Eataly for upping the ante on the grocerant trend. The concept, which originated from the chef side of the aisle, includes six different restaurants inside a massive Italian market.

It is far from alone. Kroger Co. is adding local favorites like Rapid Fire Pizza, Eli’s Barbecue and Mazunte Taqueria. The Kroger-owned Mariano’s is adding Pork & Mindy’s sandwich shops in 44 locations in Chicago. Mariano’s already has sushi and oyster bars, wood-fired pizzas, and gelato in some of its locations. Capitalizing on the lure of celebrity chefs, Pork & Mindy’s is from Food Network host Jeff Mauro.

Going niche is, in most circumstances, key for a successful grocerant. Wegman’s offers a burger bar in some of its locations, for instance. Others offer “sip-and-stroll” options with craft beer or wine available for drinking while shopping. The key in this type of grocerant is to do just one thing, but do it very, very well.

 

Consider Operational Demands

But, it’s worth noting that adding a restaurant option puts the squeeze elsewhere—especially as much grocer growth comes from smaller format stores. Traditional inner aisles are being shrunk to make room for dining. Combined with the push for more easy-to-prepare foods and meal kits, grocers could be looking at a time when staples are limited to one brand or one size, some experts say.

The pressure to innovate is on—Millennials and Gen Z want food destinations rather than markets. Surviving, especially in an era when toilet paper can be set to auto delivery, means creating an event rather than a chore.

To succeed, seasonal menus and chef-inspired dishes are a must. And the ambiance must be right, too. Who wants to eat avocado toast under fluorescent lighting? While the name itself might imply a hybrid, to compete the restaurant section must truly be a restaurant. And that means additional challenges in staffing and cleanliness. It isn’t enough to just move aside a few types of cereal and squeeze in molded plastic tables.

Whole Foods is typically considered the model grocerant, offering expansive options based on local tastes. More than 30 locations include full-service dining with wait staff. Whole Foods stores around the world include hundreds of quick-serve, grab-and-go concepts. Whole Foods says 15% of its sales come from its in-store eateries.

 

Reach New Audiences

Grocerants are a Swiss Army knife that can help grocers reach new audiences, increase foot traffic, and perk up slow periods. Millennials and Gen Z are proven foodies, despite possibly not knowing how to cook. (That’s a big driver in the meal-kit revolution, too.)

The right grocery/restaurant hybrid concept provides unique opportunities for cross marketing, while reinforcing the idea that the grocer is the food expert and the food is fresher than that of any restaurant competitor.

Hy-Vee, an early adopter of the grocerant, has more than 100 Market Grille restaurants. The grocer seamlessly ties the grocery to the restaurant by promoting its own products, such as the 100% natural Hy-Vee Choice Reserve® beef. It promotes the quality of its produce, noting, “We’ve got the freshest fruits and vegetables. In fact, there’s an entire produce department right outside our kitchen.”

Marketing tie-ins can also promote relationships with well-known chefs. Wolfgang Puck, for example, already has a heavy presence on the grocery shelves, with cookware, coffee, soup, and wine. Now, his grab-and-go and Express restaurants are aligning with Gelson’s supermarkets.

A grocerant can provide benefits well beyond clever marketing. It can help a grocer solidify its evening business. Already, grocery dominates this daypart, outpacing quick-serve restaurants fairly easily. Adding the full-on dining experience can fend off any competition.

Of course, prepared foods—even that familiar rotisserie chicken—are about providing convenience for the customer. Why not grab dinner while getting tomorrow’s breakfast items in hand?

 

The Grocerant: Doing In-Store Dining Right

A few hot items, a sandwich station, and sushi are not enough to claim restaurant status. Those are practically requirements for today’s grocers, as necessary as laundry detergent, bananas, and batteries.

Diving full-fledged into the grocerant concept requires careful consideration beyond the actual floor space. Think of it as building a standalone restaurant inside the walls. That means lighting, ambiance, and quality. It may mean staffing challenges such as bringing in bartenders and wait staff—not just elevating a pre-existing employee from bagger to restaurant host.

Grocers have seen success in developing their own concepts—like Hy-Vee’s full-servicing dining experience—and in partnering with local restaurateurs, like Kroger’s Ohio options.

Others will see that the operational undertaking (and decreasing floor space) just isn’t worth the risk.

Understanding your local shopper is just the first step. Exploring potential partnerships, making the investment to go it alone, or determining what items can be moved out to make way for the fresh food require significant insight into store operations. Given the growth of this trend—which shows no signs of slowing—it is an option worth consideration.

 

Learn how CB4’s machine learning tool helps grocers understand local demand patterns unique to each of their stores. Next,CB4 turns insights into action by sending recommendations for your teams to capture selling opportunities for the products your customers love most.

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